Introduction
The concept of composition scheme is not very new, it is based on the existing VAT law which basically was introduced to support the small supplier of goods. GST council based on the above law incorporated the concept of turnover based composition easing the burden of various compliance hassles for small suppliers.
Because of resource limitations the small entities are not able to clearly understand and comply with all provisions, hence the introduction of composition scheme resolves these problems to minimum.
Provision in the Act
Section (10) of CGST ACT states that Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed one crore fifty lakh rupees (amended), may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed.
Tax rates
| Registered Person | CGST Rate | SGST rate | Total |
| Manufacturers (Except the manufacturers of certain notified goods Refer Note 3A) | 0.5% | 0.5% | 1% |
| Supplier of Foods and Drinks (Non-Alcoholic) | 2.5% | 2.5% | 5% |
| Other Supplies (trading business etc) | 0.5% | 0.5% | 1% |
Note 3A. Notified manufacturers not eligible to opt for composition scheme are: Manufacturers of Ice Cream, Tobacco and Pan Masala
Eligibility
4A. Eligible
| Supplier | Intrastate Supply of goods |
| Turnover | 1.5 crores |
| Note: Manufacturer and trader opting composition scheme can also supply services to an extent of 10% of the turnover or Rs 5 lakhs whichever is higher. | |
| Supplier | Supplier of services |
| Turnover | 50 lakhs |
| Its important to note that those enrolled under Composition Scheme are not eligible to claim input tax credit. | |
4B. Ineligible
| Interstate supplier of goods |
| Taxpayer suppling exempted goods |
| E-commerce Supplier |
| Supplier having turnover more than eligible limit |
| Casual taxable Person |
| Non-resident Taxable Person |
| Branch situated outside state |
| Agent or Principal outside the state |
Registration Process
| Case 1- Unregistered Person |
| For fresh registration under the scheme, intimation in FORM GST REG- 01 must be filed. |
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| Case 2 – Registered person wants to shift to composition scheme |
| Intimation in FORM GST CMP-02 for exercise option |
| Statement in FORM GST ITC- 3 for details of ITC relating to inputs lying in stock, inputs contained in semi-finished or finished goods within 60 days of commencement of the relevant financial year |
Returns
A composition dealer needs to file a quarterly GSTR-4 by the 18th of the month after the end of the quarter. Also, they need to file the annual return GSTR-9A by the 31st of December of next financial year.
Note: The Due date may be extended by council time to time through notifications.
Forms
| Form Required | Purpose | Due Date |
| Form GST CMP-01 | To opt into the scheme by provisional GST registration holder (from VAT regime) | Prior to appointed date or within 30 days of the said date |
| Form GST CMP-02 | Intimation of willingness to opt into the scheme for GST registered normal taxpayers | Prior to commencement of Financial Year |
| Form GST CMP-03 | Details of stock and inward supplies from registered and unregistered persons | Within 90 days of the exercise of the option |
| Form GST CMP-04 | Intimation of withdrawal from the scheme | Within 7 days of the occurrence of the event |
| Form GST CMP-05 | Show cause notice on contravention of Rules or Act by a proper officer | On any contravention |
| Form GST CMP-06 | Reply to show cause notice | Within 15 days |
| Form GST CMP-07 | Issue of Order | Within 30 days |
| Form GST REG-01 | Registration under Composition scheme | Prior to the appointed date |
| Form GST ITC-01 | Details of inputs in stocks, semi-finished and finished goods | 30 days of withdrawing option |
| Form GST ITC-03 | Intimation of ITC available | Within 60 days of commencement of the financial year |
Benefit
- Save time due to softened compliances
- Minimum tax liability leading to more profits
- Availability of more liquidity and cash flow
- Opportunity to small businesses to establish themselves in the market by offering competitive prices by passing on the rebates.
Limitations
- Limited business territory-barred from carrying inter-state transactions
- Non-availability of input tax credit leading to less preference by dealers
- Tax borne by the composite dealer and cannot be passed on to the customer
- Hefty penalties for non-compliance of composition provisions
Conditions to be fulfilled to avail Composition Scheme
- Display at Place of Business – Every composition dealer must prominently display the words “Composition Taxable person” at their place of business
- Bill of supply not tax invoice – Unlike regular scheme where a taxpayer needs to present tax invoice to the tax authorities, taxpayers registered under this scheme need to present bill of supply.
- Needs voluntary application – Taxpayers need to make voluntary registration every year for getting the benefits of GST Composition Scheme. However, if the taxpayer crosses the minimum turnover limit of Rs.1.5 crore then he will be transferred to regular scheme.
- Penalty – If a taxable person is found not eligible for this scheme then the tax authorities can impose a penalty equal to the amount of tax on such person along with his tax liability. So utmost care needs to be taken when opting for this scheme and paying taxes.
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